A concise introduction

by Richard Pettinger

Chapter 16

Risk management is a major current issue and so you need to know:
  • the nature of risk that is prevalent in all organisations
  • the nature of risk that is prevalent in organisations that accounts for ‘sectoral risk’ or industrial risk
  • the nature of human and behavioural risk
  • the consequences of particular decisions and initiatives and actions
You need to be aware that the greatest risk to all organisations is that, collectively and individually, staff do not always get around to doing things; or that they concentrate on the tasks that they do like and avoid the ones that they do not like; or that they could not be bothered to do things; or that they could not see the value in doing things.

Each of these areas is a point of essential management intervention. The greatest contribution that anyone can make to effective risk management is to recognize where things are not getting done, and then to take steps to see that they are done.

Risk management is therefore a combination of company, market and environment knowledge, understanding and expertise, combined together with the collective and individual human attitudes and behaviour in the particular situation. Risk management therefore requires the fullest possible understanding of patterns of behaviour, and additionally requires detailed and expert environmental scanning to assess and evaluate the problems and issues from all sources; and then to take the earliest possible steps to address them. This additionally involves deciding whether you are going to:
  • accept the risk because it is either very unlikely to happen, or because of the consequences of it happening are very small
  • accept the risk and take steps to mitigate it – which you will always do for things like health and safety issues and employee relations problems
  • avoid the risk, which means that once the risk is recognized you decide that the consequences of the thing happening are too great and so you find alternative ways of achieving your objectives.

You should finally note that the performance of companies in the past few years has come about at exactly the time that so many of them have introduced very comprehensive risk management policies. The problem with risk therefore lies not in recognising it and having policies to deal with it, but in having the managerial will to address it and tackle it, and to implement the risk management policies that do already exist.

Case studies and examples

The BBC and the Jimmy Savile scandal

Speaking in February 2013 on the day that the report into the Jimmy Savile scandal was published, the BBC’s acting director-general Tim Davie stated: 

"The BBC has been open and transparent in its handling of this unhappy chapter in our history. It has not been an entirely comfortable process for us to go through but it is right that we did it this way. It is important that the BBC now moves forward with the lessons learned and continues to regain the public’s trust." 

What does this statement say about the attitude of the BBC to wrong doings by one of its erstwhile most iconic figures? More generally, what is the potential impact of powerful, dominant and influential figures on the viability of companies and organisations?

Discussion questions

In the wake of the banking crisis and the enduring difficulties in the banking and finance sectors, the big banks are being asked to separate out their retail operations from what is often referred to as ‘ the riskier investment banking operations’. Comment on this from the point of view of: the risks to the organisations; the risks to the customers; and the attitude in the statement ‘the riskier investment banking operations’.

What risks were Paris St Germain FC taking when they signed David Beckham to play for them in February 2013, when he was 37 years old? What rewards might they expect as the result of employing him?

What are the risks that every organisation has to face when diversifying into new products, new services, new markets and new locations?

Identify the balance between risk and reward in buying a house in an up and coming neighbourhood.What are the subjective elements of risk that have to be taken into account when deciding whether or not to go ahead with a new venture, product or service?